Supply House Times

Oct. 26, 2007 - Construction Market Will Continue To Weaken In 2008

October 26, 2007
McGraw-Hill Construction released its 2008 Construction Outlook, which forecasts a drop in overall U.S. construction spending for next year, fueled by tighter lending conditions and weaker job growth.

McGraw-Hill Construction released its 2008 Construction Outlook yesterday, which forecasts a drop in overall U.S. construction spending for next year, fueled by tighter lending conditions and weaker job growth. Against this backdrop, the level of construction starts is expected to decline 2 percent, to $614 billion, following an 8 percent decline predicted for 2007.

“The credit crunch that emerged at mid-2007 continues to be a major concern for construction and the overall economy,” said Robert A. Murray, vice president of economic affairs at McGraw-Hill Construction. “As a result, we’re now predicting downturns in the previously resilient multifamily and commercial segments, as well as continued weakness in single-family home construction.”

There are some positives for the market in 2008, he noted. Transportation projects should continue to see moderate growth amid a renewed emphasis on infrastructure maintenance and upgrades, particularly in the aftermath of the I-35W bridge collapse in Minneapolis. Financing from public sources will stay generally supportive, and the growth of public-private partnerships also offers the potential for greater funding.

Finally, growth in “green” construction practices means that the demand for sustainable building design and materials will continue to rise.

Highlights of the report include:

  • Single-family housing will weaken further, given the large inventory of unsold homes and diminished loan availability to homebuyers. A 3 percent drop in dollar volume is expected, corresponding to another 6 percent decline in the number of units.

  • Multifamily housing will slide 8 percent in dollars and 11 percent in units, following steeper declines in 2007. Condominium development is being dampened by greater scrutiny from lenders as well as reduced homebuyer demand.

  • Commercial buildings will slip 6 percent in dollar volume and 11 percent in square feet. Tighter lending standards and the slower absorption of space will contribute to a measured downturn for stores, warehouses, offices and hotels.

  • Institutional buildings will rise 4 percent in dollar volume, while square footage edges up 1 percent. School construction is expected to strengthen again after its 2007 pause, and transportation terminals are also expected to grow. The other institutional structure types, including healthcare facilities, will see a modest loss of momentum.

  • Manufacturing buildings will retreat 11 percent in dollar volume, after a 40 percent surge in 2007 that featured the start of several unusually costly projects, plus a large number of ethanol plants. Square footage for manufacturing buildings in 2008 is expected to advance 5 percent.

  • Public works construction will move up 3 percent, following the 5 percent gain in 2007. Highways and bridges are likely to receive greater funding when fiscal 2008 appropriations are approved. The environmental project types should be up slightly next year, but site work connected to single-family development will settle back.

  • Electric utilities will see another modest decline in percentage terms, but essentially this project type is holding at the enhanced level achieved in 2006.

    The 2008 Construction Outlook is available for purchase at www.construction.com/Outlook2008/.